Abstract
This paper proposes mark-to-market reinsurance and asset allocation strategies for insurance companies. We assume that an insurer has prior belief about the current financial market state, and that she updates posterior beliefs in relation to information quality. We show that both the mark-to-market strategies depend on prior belief, but that variation in posterior beliefs gives rise to counter-cyclical investment demand. We also show that information quality is a concave function of prior belief and is driven by the relative importance of the risk-adjusted financial premium and the reinsurance premium.
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